Archived articleTax, investments and pension rules can change over time so the information
below may not be current. This article
was correct at the time of publishing, however, it may no longer reflect our views on this topic.

Japan stock market update – how's it handling coronavirus?

Dominic Rowles, Investment Analyst, looks at the impact of coronavirus in Japan, how the stock market has reacted and outlines some important dates for your diary if you invest in Japanese funds.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please
seek advice. If you choose to invest the value of your investment will rise and fall, so you could get
back less than you put in.

Dominic Rowles, Investment Analyst

30 April 2020

Dominic Rowles, Investment Analyst, looks at the impact of coronavirus in Japan, how the stock market has reacted and outlines some important dates for your diary if you invest in Japanese funds.

Japan was one of the first countries outside China to register a case of coronavirus. But, it initially managed to avoid the rapid growth in cases that lots of other countries experienced. This helped it stay under the radar from journalists and market commentators.

At the start, many explanations focused on Japan's apparent ability to control the spread of the virus. From the country's targeting of early clusters to the willingness of the Japanese to follow government instructions in a crisis. Some also suggested that aspects of Japanese culture, such as bowing instead of shaking hands and strong social norms around mask wearing and hygiene, have helped slow the spread.

In recent weeks though, Japan's coronavirus caseload has ballooned to over 12,300. That seems a relatively small number compared to the likes of China, the US, Spain and Italy. But, Japan is only testing a small percentage of its population – official statistics might underestimate the actual number of infections.

The blame's fallen on the shoulders of Prime Minister Shinzo Abe. He's been accused of treating the outbreak as an economic and public relations emergency, rather than a health one. As families all around the world were confined to their homes, life in Japan was much the same as normal, apart from some extra hygienic precautions, for fear of damaging the economy.

On 7 April, Abe declared a state of emergency calling for voluntary social distancing and closed some businesses, but not others. However, the emergency declaration initially only covered seven of Japan's prefectures. He later broadened the policy to include all of Japan's prefectures, but only after a Health Ministry report warned there could be up to 400,000 coronavirus-related deaths in Japan if urgent action wasn’t taken.

Abe also introduced an economic rescue package, initially intended to provide a payment to any family that could prove coronavirus-related losses. But, it wasn’t long before he U-turned on that though, deciding to give a smaller payment to every resident instead.

How has the Japanese stock market been impacted?

The Japanese stock market has been volatile since the start of the year and ultimately has lost value. That said, successful early containment means the Japanese stock market hasn’t fallen as far as UK and European markets. At the time of writing*, Japan is home to one of the top-performing major stock markets of 2020 so far. However this is a very short time period to measure performance and past performance is not a guide to the future. Shares, like other investments, will fall as well as rise in value so you could get back less than you invest.

Performance of the world's major stock markets so far in 2020

Small and medium-sized Japanese companies have lost 12.7% and 11.8% respectively since the start of the year*. They tend to be more sensitive to the health of the Japanese economy than larger businesses, which lost 8.3%.

Some industries are also more sensitive to the performance of the Japanese economy than others are. Sectors that tend to make money regardless of what's happening in the broader economy, like utilities and health care performed best. More economically sensitive sectors like basic materials and financials didn’t do so well. Oil & gas companies were the weakest performers because of a collapse in global oil prices.

Remember, lots of Japanese companies have lived through economic ups and downs in the past and have come out the other side. In some cases, sharp share price falls are justified. In others, they’re not. Talented stock pickers will use the current stock market weakness to invest in some exceptional companies at knock-down prices, however there is no guarantee that a company will be able to turn it around.

How has our Wealth 50 pick performed?

This is the only actively-managed Japan fund on the Wealth 50. Lead manager Stephen Harker has an excellent long-term track record. But, the fund's recent performance has been disappointing. Since the start of the year, the fund's fallen in value by 22.7%, compared with a fall of 9.0% for the broader Japanese stock market to 23 April 2020.

Harker and his team invest in large Japanese companies that are unloved by other investors, possibly a company that has failed to live up to investors' expectations, or its managers have made some unpopular decisions. Either way, to make it into the fund, Harker needs to think a company is capable of a recovery. It's a style known as 'value' investing.

'Value' companies have performed particularly poorly since the start of the year. In fact, the manager thinks it's been one of the worst periods for large 'value' companies in his 30 year career. Particularly hit were the fund's investments in banks, oil producers and car manufacturers. Less exposure to 'defensive' companies which are less sensitive to the economy also hampered returns.

The manager thinks the companies he invests in are extremely attractively valued and have strong long term growth potential from current levels. The extreme market conditions are also producing lots of interesting investment opportunities. New investments include machinery giant Komatsu, which had performed very poorly in the market rout and its share price fell to a level the manager deemed attractive.

Remember, past performance isn’t a guide to future returns though. This fund has a concentrated portfolio and invests in a relatively small number of different companies which increases performance potential, but also adds risk.

Some dates for your diary

There are a number of public holidays coming up in Japan. On these days all Japanese banks and financial institutions, including the stock market, are closed.

Some funds will restrict trading on and around these public holidays. That means you won't be able to buy or sell any affected fund throughout the period. Any deals will be placed when the fund reopens, and you’ll receive confirmation shortly after.

Other funds plan to remain open for dealing but they’ve the right to restrict dealing if there are large outflows. The public holidays are listed below.

4 May

5 May

6 May

There are UK bank holidays on 8 and 25 May so trading may also be restricted on these days.

This article isn’t personal advice. If you’re unsure an investment is right for you, seek advice.

What did you think of this article?

5 star4 star3 star2 star1 star

Editor’s choice: our weekly email

Sign up to receive the week’s top investment stories from Hargreaves Lansdown

Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek
advice. If you choose to invest the value of your investment will rise and fall, so you could get back
less than you put in.

Kate Marshall, Senior Investment Analyst looks at how the coronavirus pandemic has affected stock markets, sectors and economies across Latin America, what the future could hold and what this could mean for investors.

Kate Marshall

03 Jun 2020 | 5 min read

Our website offers information about investing and saving, but not personal advice. If you're not sure which
investments are right for you, please request advice, for example from our financial
advisers. If you decide to invest, read our important investment notes first and
remember that investments can go up and down in value, so you could get back less than you put in.